FA 2022-001 Improve Budgetary Controls over Expenditures Compliance Requirements: Activities Allowed/Unallowed Allowable Costs/Cost Principles Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education AL Number and Title: COVID-19 ? 84.425D ? Elementary and Secondary School Emergency Relief Fund Federal Award Numbers: S425D200012 (Year: 2020), S425D210012 (Year: 2021) Questioned Costs: $62,747.69 Description: A review of expenditures charged to the Elementary and Secondary School Emergency Relief Fund program revealed instances in which expenditures had not been properly approved by the pass-through entity. Background: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID-19 outbreak. Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation. ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $199,433,680.30 were expended and reported on the DeKalb County Board of Education?s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2022. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 ? Internal Controls. Additionally, provisions included in the Uniform Guidance, Section 200.403 ? Factors Affecting Allowability of Costs state that ?costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items, (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity? (g) Be adequately documented?? To assist school districts in improving their financial management systems and associated compliance over federal programs, GaDOE published the Financial Management for Georgia Local Units of Administration (FMGLUA) manual. The FMGLUA manual requires that LEAs submit a budget as part of each federal program?s Consolidated Application process. The program budget reflects details regarding the manner in which each school district intends to expend the program funds. The Consolidated Application, including the budget, for each program must be reviewed and approved by GaDOE personnel before the LEA is authorized to expend program funds. Amendments to the budget are to be submitted to and approved by GaDOE when a school district intends to spend funds in a manner not initially reported. Further, LEA personnel must also provide program-specific assurances related to the ESSER program within the Consolidated Application system. These assurances are reflected in the Uniform Guidance, Section 200.415 ? Required Certifications, and include provisions that require LEAs ?to assure that expenditures are proper and in accordance with the terms and conditions of the Federal award and approved project budgets?? Condition: A sample of 60 nonpersonal services expenditures was randomly selected for testing using a non-statistical sampling approach. Four individually significant items were also selected for testing. These expenditures were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. Upon completing this testing, it was noted that three individually significant items totaling $48,037.69 and two randomly selected expenditures totaling $14,710.00 were not appropriately approved by GaDOE through the Consolidated Application process as required. Questioned Costs: Upon testing a sample of $2,037,733.28 in nonpersonal services expenditures, known questioned costs of $14,710.00 were identified. Using the total nonpersonal services expenditure population of $47,278,482.26, we project the likely questioned costs to be approximately $798,116.60. In addition, known questioned costs identified for improper payments associated with individually significant items tested totaled $48,037.69; therefore, the known and likely questioned costs identified for all unallowable payments throughout the sample and individually significant items tested totaled $62,747.69 and $846,154.29, respectively. Cause: In discussing these deficiencies with management, they stated that inadequate staffing levels led to the School District?s failure to establish appropriate internal control procedures, such as a review by appropriate personnel to ensure compliance with the Consolidated Application prior to the expenditure of federal funds. Additionally, the existence of multiple programs and associated Consolidated Applications led to the School District?s failure to establish appropriate internal control procedures to ensure the expenditure was approved on the specific Consolidated Application that funded the expenditure. Effect: The School District was not in compliance with the Uniform Guidance or GaDOE guidance related to the ESSER program. Failure to accurately develop and amend budget information through the Consolidated Application process and verify compliance with applicable policies and regulations prior to the expenditure of federal program funds may expose the School District to unnecessary financial strains and shortages as GaDOE may require the School District to return funds associated with unapproved and unallowable expenditures. Recommendation: The School District should revise current internal control procedures related to the ESSER program. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that potential expenditures are approved through the Consolidated Application process and deemed to be allowable before spending federal funds. In addition, management should develop and implement a monitoring process to ensure that control procedures are being followed. Views of Responsible Officials: We concur with this finding.